Trading Strategy «LinReg»
Each trader knows that the price mostly moves within one channel. Visually recognized and put on the chart it allows you make quite effective forecasts. You can define support and resistance levels manually, but it’s not that simple, especially for newcomers. To make this challenge possible the special indicators were developed, which build the price channel on the chart automatically. «Linear Regression» is the perfect tool. Based on this indicator the strategy «LinReg» was created, in this article we offer you its review.
To trade with the strategy you need to open two tabs in your browser. In the first one you set the «Live chart» of TradingView (go to the website), for technical analysis, in the second one – the trading platform Binomo. You can choose any asset, but the currencies are recommended. Steps for adjustment of the analysis panel:
- Choice of the preferable currency pair and the time frame setting (1 minute, for instance);
- Adding «Linear Regression» indicator (Lin Reg) to the chart;
- Changing the standard settings of the Upper and Lower Deviation on «1.7».
If everything was done properly, the blue channel shall appear on the chart, consisting of two varicolored halves – red and blue ones. It designates the active corridor, where the price currently moves. The extreme and medial levels play as support and resistance. You can trade based on this.
Signal to purchase «Up» option
When the price comes to the support level, the chance it will turn around and keep growing is highly possible. But here important is to recognize the break type at the right time – the false or true one. In the former case it will be the bounce from the lower boundary, in the later case the price will break the level and fall, running beyond the current channel. The statistics shows for the first version. Around 7 breaks of 10 are usually false, which lets you cash in on.
On the image above three signals are pointed, indicating the false break of the level. It looks as follows. First, the descending candle stick shall close below the channel boarder. After that some candle sticks may appear below the support level. Second, the price goes back to the space within the channel soon. The option shall be bought right after the candle stick maximum crosses the lower line.
Signal to purchase «Down» option
The case with the sale transactions («Down» option) is similar, just it’s referred to the upper boundary of the channel. The signs of the resistance level false break are the same: the price goes first beyond the line, then quickly gets back to the frame.
From the theoretical perspective the market seems to be «testing» the levels out. If the opposite forces in the market are strong enough (in our case it’s «bears»), the prices pullback takes place.
Predominantly right after the false break the price crosses the medial channel line or even reaches the opposite boundary. But the continued motion in the conventional direction for at least 3-5 candle sticks is pretty much ensured.
Here we need the detailing. The price often doesn’t break the level, but turns around on the approach to it. In this case the market behavior is similar, but the motion power is a bit less. The rules for the market entry stay the same. As the trader gains experience he gets the skills of the subconscious market comprehension, which lets him guess more precisely if the break is false or true.
Real trading example
We opened the chart of TradingView (go to the website), chose the currency AUD/USD with the time frame M1 and added the indicator «Linear Regression» with the required settings. Verything is ready, we are left to expect the signal, when the price gets closer to the channel boundaries.
On the image above we see that the price turned around next to the resistance level without braking it. This is the signal to enter the market.
We buy the «Down» option with 3 minutes expiration. This time is fair enough to get the profit. As can be seen from the image, two similar transactions are open, with the time frame of some seconds.
3 minutes are gone, there are 3 descending consecutive candle sticks running on the chart. The price bounced from the resistance level – we gained the net profit over $15.
Expiration and money management
Experience has proven the signal efficiency right within the first 3 minutes. Thus the expiration time shall not be over 5 candle sticks. Exactly 3 minutes is a «middle course», we chose this time frame for a reason. For a transaction use no more than 5% of the deposit. We invested $20 to options, with around 400 dollars on the account, so this rule also was observed.